Government bonds were boosted as markets welcomed yesterday’s decision by the NTMA to put new bond deals on hold until 2014 and cancel plans to issue short-term “bills”.
The surprise announcement appeared to go against earlier plans by the National Treasury Management Agency (NTMA) to “re-engage” with investors before the end of the bailout, including launching a bond after the Budget.
But investors backed the move. On the markets, Irish government bonds rallied after the announcement. Ironically it sent the cost of borrowing, if the NTMA did launch a bond, lower.
The NTMA, which manages the national debt, said it had suspended any further borrowing “in view of its relatively strong funding”.
The NTMA is sitting on a cash pile of €25bn, more than enough to finance outgoings into 2015.
“It’s a smart move by the NTMA,” said bond trader Ryan McGrath of Cantor Fitzgerald.
He said the Government had raised enough cash to last into 2015, and holding on to the money was now a cost.
The Government has close to €30bn at its disposal when the NTMA cash is added to other assets including those of the Housing Finance Agency, according to UCC economist Seamus Coffey.
Cash borrowed on the markets or from the EU and IMF was sitting on deposit at a loss, Mr Coffey said, including around €10bn sitting in the main banks here and cash held in the Central Bank.
There is little to gain by using the money to pay off the national debt, however, because the cash will be used up over the coming 15 months, he said. Money is being used up because government spending still outstrips tax income and because bonds will fall due over the next year.
The NTMA expects its cash reserves to drop to €20bn by the end of this year, with a further €6.8bn knocked off as it repays debts falling due next year.
“Stepping back from borrowing is not a sign of weakness for the NTMA,” said Padhraic Garvey, the head of developed markets, debt and rates strategy at ING in Amsterdam.
But he said the next step for Ireland should be to move ahead with more regular debt issuance next year, including a so-called syndicated bond deal, and by setting out and holding to a more regular schedule of bond deals.
The yield, or implied cost of borrowing, for 10 years fell to 3.825pc for Irish bonds yesterday. That compares to 4.47pc for Italy and 6.586pc for Portugal. Irish bonds were being sought by investors because the statement means they will remain relatively scarce, he said. Source: The Irish Independent